However, many analysts are skeptical that such an initiative will ever gain traction.

“Though we are the food center of the world, we have had little influence on the price,” Thailand government spokesman Vichienchot Sukchokrat said last week. “With the oil price rising so much, we import expensive oil but sell rice very cheaply, and that’s unfair to us and hurts our trade balance.”

Thailand is the world’s leading rice supplier, having exported an estimated 9.5 million metric tons of rice in 2007. With countries like Vietnam, India and Indonesia curbing exports to shore up domestic supplies, Thailand could be responsible for even more of the world’s rice intake.

Rice export volume from Thailand rose 36% in the first four months of the year, the Bangkok Post reported. According to the country’s Foreign Trade Department, Thailand may supply 45% of the world’s rice exports this year.

With rice prices soaring, Thailand has taken the lead in rallying support for a cartel that would include: Laos, Myanmar, Cambodia, and Vietnam. Combined, these five nations account for 14% of world output.

Laos Foreign Ministry spokesman Yong Chanthalansy said Friday that his country would “seriously consider” the idea. Thai officials have also confirmed that discussions were held with Myanmar last Wednesday and Cambodia has voiced support for such action in the past.

“By forming an association, we can help prevent a price war and exchange information about food security,” Khieu Kanharith, Cambodia’s chief government spokesman, told the Associated Press.

However, many experts are skeptical such an organization will ever form because of the tremendous amount of coordination and effort that would have to be involved. While the nations involved would be able to discuss a pricing scale and share information and technology, rice supplies cannot be as easily manipulated as oil production.

“It’s impossible. We can’t fix prices as OPEC does because we can’t control our production like OPEC,” Chookiat Ophaswongse, President of the Thai Rice Exporters Association, told Reuters. “It might be easy for Communist Laos or Vietnam to control their farmers, but we can’t do that in a free-market economy like Thailand. Farmers will rush to grow more rice when prices go up and shift to other crops when prices fall.”

The would-be group includes two democracies, two Communist states and a military dictatorship.

The idea of a cartel was previously discussed in 2001, when Thai exports were struggling to compete with markedly less expensive rice from India, Pakistan and Vietnam. The proposal fizzled then as it seems destined to now.

Nonetheless, agricultural ministers will further probe the possibility in September at a meeting of the 10-nation ASEAN regional group.

This from The New York Times:

The prime minister of Thailand, Samak Sundaravej, said Wednesday that his government would try to create a cartel of rice-producing countries in partnership with Vietnam, Cambodia, Myanmar and Laos.

“We don’t aspire to be like OPEC, but we hope to be just a group of five to help each other in trading rice on the world market,” Mr. Samak was quoted as saying in The Nation newspaper.

Meanwhile, says The Wall Street Journal, food rationing and stockpiling is continuing in the US.

Stockpiling staples such as rice, meats and canned soup is coming into vogue again as food inflation and $3.60-a-gallon gasoline have consumers cutting the frequency of shopping trips — and loading up carts when they do shop. Sometimes shoppers are prodded by fears of impending food shortages, though none have yet materialized in the US.

Jason Simpkins in Money Morning says that “the price of rice has finally started to moderate this week, with rice futures sinking for a fifth straight day. Rice has retreated 11.6% on the Chicago Board of Trade since hitting an all-time high last Thursday.

“But this decline is likely just the start for rice prices, which have been artificially inflated by government controls and may continue to plummet by as much as 20%.”

That’s not an exaggeration. Interest-rate policy normally only affects the world economy at the margin, but it has now been so expansionary for so long that the Fed’s interest-rate strategy has turned into a moral dilemma of sorts. In short, the central bank’s monetary policy will likely determine whether millions of U.S. homeowners lose their homes or millions of the world’s poor starve.

Let me explain…

Expansionist Policies Lead to Market Bubbles

The Federal Reserve has been pursuing an expansionary monetary policy – growing the M3 money supply much faster than Gross Domestic Product (GDP) – since 1995. This has yet to result in U.S. consumer price inflation because a very powerful deflationary force – the introduction of cheap and readily available global communications through the Internet – has counteracted it.

Even though prices of domestically produced goods were increasing, the prices of many goods and services dropped as they became sourced from India (software services, for instance) and China (clothing, for example).

The result has been asset bubbles in both U.S. stocks and then U.S. housing, but without an accompanying big increase in consumer price inflation. Since last September, the Fed has moved to make monetary policy even more expansionary, cutting the benchmark Federal Funds rate six times to bring it down to 2.25% from its starting point at 5.25%, and pumping massive amounts of money into the banking system to bail out the banks that had lost money on subprime loans.

Most experts believe the central bank will cut rates again tomorrow (Wednesday), most likely taking the Fed Funds rate down another quarter point, to an even 2.0%, upon which the central bank will take a rate-reduction breather.

From the point of view of the U.S. housing market, Fed Chairman Ben S. Bernanke should keep cutting interest rates. Low short-term interest rates have a doubly beneficial effect on housing:

• First, low-level short-term rates tend to reduce long-term mortgage rates, while at the same time making banks more profitable. This increases banks’ readiness to lend for housing and reduces the interest rate on mortgages, making finance easier to get and cheaper for prospective homebuyers.

• Second, lower interest rates cause inflation. Consumer-price inflation is currently running at an annualized rate of about 4% over the last 12 months, so interest rates at about 3.6% for 10-year Treasuries and 2.25% for the Fed Funds rate are now significantly below the U.S. economy’s inflation rate. That means savers are getting an even worse deal than they usually get. It also means inflation is almost bound to accelerate: By definition, if borrowing costs are actually less than zero, people will find ways to borrow and then will waste the money they have borrowed.

The bottom line: Inflation is likely to rise rapidly towards the 10% level in the months to come.

The Fed’s Inflation-Fueled Rescue Plan

In most quarters, inflation is viewed as a four-letter word. But in a housing market where home prices are locked in a downward spiral, inflation is actually very good. For instance, should inflation spike to 15% and stay there for all of 2009 – while the U.S. economy remained in decent shape – then wages and prices could be expected to increase by 15% in 2009.

Additionally, the dollar would drop in value against other currencies that did not experience this burst of inflation. That would make housing relatively cheaper both for U.S. homebuyers (house prices would be a smaller multiple of earnings) and for foreigners (fewer European euros, Japanese yen or Chinese Renminbi needed to buy U.S. houses). The decline in housing prices would stop – and probably reverse – and the tsunami of mortgage foreclosures also would slow. The reason: Home mortgages would cease entering the “negative equity” situation in which it is cheaper for borrowers to walk away from both their home and mortgage than to keep making the payments.

If we’re only considering the housing market, Bernanke should lower interest rates as fast as possible. It will cause inflation, but he may well believe that a further series of home-price declines would cause so many problems in the home-mortgage market that moderate inflation is preferable.

Unfortunately, we don’t live in an economic vacuum, and Bernanke and his fellow Fed policymakers have much more to consider than just the travails of the U.S. homeowner.

You see, in addition to U.S. inflation and housing, Bernanke’s monetary policy has affected the world commodity and energy markets – and in a huge way. That’s why oil is now five times more expensive than it was in 2002, and is likely headed higher, still, before consumers get a reprieve.

But it was the rate-cutting campaign the Fed embarked upon last September that’s inflicted the real damage. Fed policymakers fired their first shot at the Fed Funds rate on Sept. 18, when it took short-term rates from 5.25% to 4.75%. On that day, oil closed at $82 per barrel, gold at $770 per ounce and the Reuters-CRB Index (CCI) of commodity prices was at 435. The flood of money poured into the system by the Fed and other central banks in the last seven months has had the anticipated impact: As I write, oil is at $118, gold is at $890 and the CCI Index has reached 544.

According to Reuters: “Vietnam acted to quell panic over rice supplies on Monday, banning speculation in the market after a ‘chaotic’ buying binge in the Southeast Asian nation highlighted growing global fears about food security.

The move comes as protests spread through Africa over rising food prices, which aid experts have warned threaten to starve 100 people.
Rising food and grain prices have also caused thousands of investors to turn to the internet to search for an ETF for rice or a broader commodity ETF.

“Commodities, and soft agricultural commodities in particular, are not tied to stocks, bonds or currencies,” says The Sovereign Society’s Eric Roseman. “They’re not correlated to any of these markets directly. Therefore commodities provide a critical asset-allocation diversification strategy to traditional portfolios.

“Commodities feed on easy money or low rates, a declining dollar and most of all, falling production coupled by rising demand. That’s exactly what we’ve got in 2008.”

Back in March 2006, Eric was so excited about soft commodities he asked Jyske Bank in Denmark to create a guaranteed structured product to invest in a basket of agricultural commodities. Twenty-four months this fund is up 72%. To find out more and find out how to feed the world and your portfolio, click here.

Food-price inflation has gathered pace of late, with wheat, corn, soybeans and rice all hitting records this year; rice prices have soared by 141% since January, with US futures gaining 17% last week alone. Between February 2005 and February 2008, food prices rose by an average of 83%, says the World Bank.

With food comprising around half of household consumption in some countries, civil strife is growing. Riots have broken out in at least a dozen countries – including Senegal, Mexico and Egypt, where the president has ordered the army to start baking bread; the Philippines has made rice hoarding punishable by life imprisonment; in Haiti, protests over rice prices have forced the resignation of the prime minister.

According to Rob Zoellick, president of the World Bank, food inflation could push at least 100 million people back into poverty (defined as earnings of $1 a day) and set back global progress against poverty by up to seven years.

Mounting wealth in developing countries has stimulated demand for food in general, and particularly meat and dairy products, which increases demand for grains to feed livestock. Soaring energy prices have increased demand for biofuels, which means more grains are devoted to ethanol. Almost all the expansion in global corn production from 2004 to 2007 was put towards American biofuels production, reckons the World Bank. Urbanisation has reduced agricultural land and agricultural productivity has made only modest progress over the past two decades. Stockpiles are at their lowest in 30 years.

Nor does it help matters that no fewer than 48 countries have imposed price controls, export restrictions or consumer subsidies, as The Economist notes. Such measures have distorted the price signals “that would otherwise have encouraged farmers to grow more food”. Meanwhile, investors heading for commodities as a hedge against inflation and dollar weakness have also underpinned prices; according to Christoph Eibl of Tiberius Asset management, $40bn flowed into raw materials markets in the first quarter of 2008 alone. The world now faces a “downward spiral of trade restrictions, higher prices for staples and starvation”, says the managing director of the IMF, Dominique Strauss-Kahn.

With China and other emerging countries now worried about food-induced inflation, they are raising interest rates, which is a “dangerous development” for a world economy relying on domestic demand in the emerging world, says Anatole Kaletsky in The Times. And as the Asian Development Bank points out, Asian government subsidies to cushion the impact of food-price rises is posing a threat to national budgets.

The ultimate answer to high food prices is to boost production, but that won’t happen if governments continue to prevent producers from receiving the right price, lowering incentives to boost production and keeping prices high, says Stephen King in The Independent. “For the emerging world, this has the potential to turn into an economic shock on a par with the oil price increases which hit the Western world in the 1970s.”

http://www.moneyweek.com/file/46017/the-silent-tsunami-threatening-the-world-economy.html

Unfortunately, there is still no specific ETF for rice. But that doesn’t mean there aren’t any commodities ETFs to help investors profit from the rise in rice and grain prices.

“Commodity service-providers have launched a blizzard of commodities ETFs over the last 12 months,” says Eric Roseman in the Offshore A-Letter.

“These new ETFs allow both individual and institutional investors access to hot commodities like coffee, wheat, sugar and corn, to name only a few.

“It’s no wonder investors have poured an extra US$30 billion into commodities within the first 60 days of the year alone compared to just US$10 billion in 1998. The boom has arrived and everyone wants a piece of the action as the dollar slides, rates plunge and emerging markets feed their bustling infrastructure and populations.”

Global ETF specialist Mike Burnick is also bullish on commodities ETFs.

“I’m really excited about the relatively new class of ETFs that were launched just in the last few years that track commodities. As you know, commodities have been a red-hot investment over the last – really, over the last five or six years of this bull market. We’ve seen crude oil more than double; some of the industrial metals have more than tripled; gold is up above $950 an ounce.

“Now, on the London Stock Exchange, there’s a company that listed a whole series of ETFs that cover everything in the commodities sector that you could imagine. Everything from aluminum to zinc, and everything in between. I’m really excited about these agricultural commodities.”

Read Mike’s article on hot ETFs.

According to the Washington Times, “Costco and other grocery stores in California reported a run on rice, which has forced them to set limits on how many sacks of rice each customer can buy.”

Meanwhile, reports the paper, “Filipinos in Canada are scooping up all the rice they can find and shipping it to relatives in the Philippines, which is suffering a severe shortage that is leaving many people hungry.

The reports of food rationing in California come as US rice futures hit record highs.

Many smart investors are asking: Is there a rice ETF? And the internet is hopping with questions about the existence of commodities ETFs to profit from the situation.

Soft commodities are now the best-performing sub-set of the commodity bull market,” says Eric Roseman in the Offshore A-Letter.

“It’s the perfect storm for investors — especially when just about everything else in the investment world has continued to post big declines since last July.

“Commodity service-providers have launched a blizzard of commodities ETFs over the last 12 months. These new ETFs allow both individual and institutional investors access to hot commodities like coffee, wheat, sugar and corn, to name only a few.””It’s agricultural Armageddon,” says ETF expert Mike Burnick.

“The escalating food crisis is easily the biggest problem facing Asia and other emerging markets — much more troubling than the credit crunch. After all, people in these nations can do without bank loans or new credit cards, but they can’t stop eating!”

The price of rice, which has doubled in the past year, jumped 2.3% in Chicago today.

“Soft commodities are now the best-performing sub-set of the commodity bull market,” says Eric Roseman in the Offshore A-Letter.

“It’s the perfect storm for investors – especially when just about everything else in the investment world has continued to post big declines since last July.

“Commodity service-providers have launched a blizzard of commodities ETFs over the last 12 months. These new ETFs allow both individual and institutional investors access to hot commodities like coffee, wheat, sugar and corn, to name only a few.”

As governments with grain surpluses tighten their grip on reserves, countries reliant on imported staples “are scrambling to secure supplies”. The increases have sparked food riots in Asia and Latin America.

What’s behind the rise?

Two main factors are underpinning rising food prices, noted John Greenwood in The Sunday Telegraph. Governments in the US, EU and elsewhere have set legally binding targets for producing biofuels, while increased demand for protein-rich foods from emerging markets such as China, India, Russia and Brazil is squeezing traditional agriculture.

Producing a kilo of meat takes many times the number of acres needed for a kilo of rice, added James Moore in The Independent. The weak dollar, which has seen long-term speculators entering agricultural markets “alongside the usual band of speculators”, weather problems and suspected hoarding have all compounded the damage.

And the consequences?

The UN’s top humanitarian official, Sir John Holmes, warns escalating prices and resulting food riots threaten to destabilise weak governments, said David Adam in The Guardian. The crisis means consumers and governments no longer take rice – the staple food in half the world – for granted, said Thomas Fuller in the IHT, and it could speed up the adoption of genetically modified strains.

Don’t count on a lasting relief from the crisis any time soon. While rising prices should ultimately improve supply, global cereal demand will expand 2.6% this year.

Source:http://www.moneyweek.com/file/45238/world-heads-towards-food-crisis.html

There was more volume on the Comex on Wednesday than there had been in a while, but still nothing major. It’s interesting to note that the price rallies in both metals appeared to have been capped before the 50-day and 20-day moving averages were violated to the up-side. As I mentioned earlier this week, these are the magic moving averages that the tech funds like to use as long-side buy signals.

We also had a key reversal day to the up-side in both metals. The boys have never allowed this technical indicator to stand….squashing the price of both metals during the following trading session. Let’s see if that happens again this time. If it doesn’t, and prices continue to rise, then the tech funds will certainly show up…and the trading day could get real interesting.

As far as Tuesday’s open interest numbers, gold was up a scant 534 contracts and silver o.i. fell 761 contracts…both on very low volume. With more activity on yesterday’s strong rise in both metals, it’s pretty much a given that both o.i. numbers for Wednesday will be positive…and much larger. I’m sure there was a tech fund or two on the prowl yesterday as well.

A couple of stories today. During the last week, rice has been in the news a lot, and I have a bunch of them in my in-box. Seems like the price of rice have been climbing quite a bit…to the point where riots and strikes are breaking out in some third-world countries. Governments are becoming concerned…and some are taking action. Here’s a story out of London’s Financial Times entitled “Rice jumps as Africa joins race for supplies.” Click here.

The main feature is commentary from Michael Kosares over at usagold.com. MK puts a very positive spin on gold’s future. I’m sure his comments would encompass silver was well. The essay is entitled “Golden Gut Check” and it’s linked here.

Today should be another interesting day. Equities should continue to levitate. Now that the PPT is stalking the land, it’s hard to know what’s real and not real, as they’ve done everything in their power to thwart the pricing mechanism of our supposedly free markets. But they can’t do it forever.